Special Coverage

TRAVERSE CITY – When consumers choose an alternative to a gasoline engine, they choose a diesel more often than a hybrid, says Tim Manganello, CEO of BorgWarner Inc.

For example, 40% of Volkswagen Golf buyers choose a diesel, while only 5% of Ford Escape customers choose a hybrid.

“This is significant,” Manganello says, “especially when taking into account the fact that diesels are swimming upstream against the U.S. government’s focus on electric vehicles, an outdated inaccurate perception problem for diesels, a lack of availability of diesels and higher taxes on diesel fuel.”

He says the U.S. government may have gone too far in “trying to dictate the powertrain technology of the future” by placing incentives on hybrid-electric and electric vehicles, while the market votes for diesels.

“We supply to gasoline, diesel, hybrid and electric vehicles,” Manganello says. “We cover the full gamut.” Products include dual-clutch transmissions and control modules, timing and ignition systems and 4-wheel-drive systems.

But BorgWarner’s emphasis on diesels is natural because its turbochargers appear on many of the common-rail diesels making up about half of new-car purchases in Europe.

Acceptance of diesels would have an immediate effect on both fuel consumption and BorgWarner sales. Quoting the Environmental Protection Agency, Manganello says if America would choose diesels for a third of its fleet, it would save 1.4 million barrels of oil a day.

He says a diesel running on fuel with 20% biodiesel, as well as a gasoline HEV using E20 fuel, are slightly more efficient on a well-to-wheel basis than an electric vehicle. Manganello is not alone in his interest in diesels.

Jim O'Donnell, president of BMW of North America LLC, says America might not be the biggest market for hybrids or electric cars one day. But if rules and taxes did not penalize the fuel, the U.S. market would represent “one of the biggest for diesels.”

And John Krafcik, CEO of Hyundai Motor America, which is introducing a hybrid Sonata sedan, also argues that “picking specific engineering solutions – that’s probably better for government to stay away from. It almost never works.”

Even without the benefit of government support for more traditional means of reducing fuel consumption, BorgWarner is on the way to a record profit year.

Manganello says the supplier should close 2010 with $5 billion in sales, up from $4 billion in 2009. BorgWarner recently reported second-quarter profits of $83 million, thanks to a product portfolio helping to improve fuel economy, as well as restructuring during the past two years.

To make a sustainable auto industry, he says, the market can have multiple technologies, but they must have “sufficient volume to make a dent in reducing fuel usage.”

Supplier relationships with OEMs are solid, from Manganello’s perspective. “Relationships are pretty strong, mainly because everybody is appreciative of leading technology and more focused on emissions and fuel economy than pricing or cupholders.”

Every OEM wants to be the customer of choice for suppliers with the best technology, he says. Some of BorgWarner’s newest technology will show up first on cars from Chinese auto makers, he says. “They want the best, and they move fast and they pay for it.”

Manganello also urges the U.S. to establish an energy policy that will guide business investment in future technologies by assuring stability.

For example, he says, there is no decision yet on questions such as testing procedures for automobiles to meet future fuel-economy rules. Until they are established, he says, “we are forced to make today’s long-term business decisions, knowing they may change.”

In any case, Manganello says, governments are going to become more important to the auto industry only as they tackle the global challenges of economic growth, energy and the environment.

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